Higher govt borrowing may crowd out private sector: DCCI

The central bank's target to raise the public sector credit growth in the January-June half of the ongoing fiscal year may crowd out the private sector, said the Dhaka Chamber of Commerce & Industry (DCCI) yesterday.

The credit growth target for the public sector has been adjusted upwards to 37.7 per cent from 36 per cent, according to the monetary policy statement (MPS) unveiled on Sunday. The actual credit growth was 26.6 per cent in the July-December period.

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The goal for the private sector credit growth has been kept unchanged at 14.1 per cent, against an actual growth of 12.8 per cent in the first half of FY23.

"The target for public sector credit may cripple new borrowing and investment by the private sector," said DCCI President Sameer Sattar in a press release. 

In order to reduce public sector borrowing, efficiency and good governance need to be continuously ensured through the reduction in government expenditure, austerity measures and prioritising development projects, he said.

"The target for public sector credit may cripple new borrowing and investment by the private sector," said DCCI President Sameer Sattar

The chamber, however, hailed the new monetary policy stance, saying it would help both the private and financial sectors turn around.

"As a whole, the MPS is promising with good indications to contain the current economic challenges," Sattar said.

"However, a timely implementation strategy through coordinated efforts from the public and private sectors along with strong monitoring by the central bank can achieve the core goals of the money market and the economy."

The MPS is primarily aimed at curbing inflation and stabilising the foreign exchange reserve.

Also, in the current market condition, the proposed relaxation of the lending rate cap for consumers' credit and the complete removal of the deposit floor rate may encourage savings and smoothen the liquidity reserve of banks, according to Sattar.

Regarding the exchange rate stability, the business leader said he was relieved to see that the BB hopes to gradually move towards a market-based, flexible and unified exchange rate regime by the end of this fiscal year.

In order to avoid trade-based money siphoning, he supported the BB decision to beef up its monitoring to track import letters of credit (LCs) before making any final payment.

"Also, it will be helpful to pre-inspect any LCs worth $3 million or more."

However, under the current economic scenario, the DCCI chief suggested the relaxation of the LC margin for essential commodities and industrial materials for catering to local and export-oriented industries.  

According to the press release, Sattar was hoping for solid recommendations from the central bank to deal with non-perfuming loans (NPLs).

"This is because maintaining a low NPL and ensuring good governance practices are critical for maintaining financial sector stability."

The total volume of NPLs increased by more than three times in the last 10 years since 2012, according to a report by the Centre for Policy Dialogue.

The NPLs surged to Tk 134,396 crore in the first quarter of 2022-23 from Tk 42,725 crore in the fourth quarter of FY2012, as per the report.

"The MPS could benefit from more concrete and clear measures or instructions from the BB as to how the NPL can be effectively reduced," said Sattar. 

Since the growing NPL is limiting the private sector credit and stalling private sector growth, Sattar feels that stern measures for quick loan recovery should be brought into place.

The chamber suggested the BB identify and pinpoint the exact reasons for NPLs, focus on habitual defaulters and start engaging with various institutions and stakeholders in order to work towards reducing the current backlog in recovery cases and bringing quick reforms to the existing laws by introducing alternative dispute resolutions.

Sattar welcomed the BB decision to establish a special monitoring cell for continuous review and oversight of big loans as part of a comprehensive NPL resolution mechanism.